Mugabe’s Zimbabwe Cabinet of Loyalists Leaves Investors Wary

Robert Mugabe, Zimbabwe's president, center, and his son Bellarmine, second left, leaves after voting at a polling station in a school in Harare on July 31, 2013. Photographer: Alexander Joe/AFP/Getty Images

Sept. 18 (Bloomberg) -- Zimbabwean President Robert Mugabe
stacked his new cabinet with ruling party loyalists, signaling a
return to policies that caused a 40 percent contraction in the
economy.

Since his election victory in July, Mugabe, 89, has pledged
to press ahead with a policy to force mining companies such as
Impala Platinum Holdings Ltd. and Anglo American Platinum Ltd.,
both based in Johannesburg, to cede majority stakes in their
local units to black citizens or the government. The southern
African nation holds the world’s second-biggest platinum and
chrome reserves after South Africa, as well as diamond, gold,
iron ore and coal deposits.

“This cabinet doesn’t bring with it the air of significant
change, and foreign investors will have to be convinced by
actions of the appointees before they rush in,” Scott Gibb, a
London-based partner at Cube Capital where he manages $750
million including investments in Africa, said in a Sept. 11
interview. “It is perhaps a wasted opportunity.”

Zimbabwe’s economy emerged from almost a decade of
recession when the government in 2009 permitted the use of the
U.S. dollar and other currencies including the South African
rand, after the local currency’s devaluation drove inflation to
what the International Monetary Fund estimated was 500 billion
percent. Agriculture was decimated in the one-time grain
exporter after the violent seizure of white-owned commercial
farms began in 2000.

‘Rigged Elections’

From 2009 to this year’s election, investors drew
confidence from the inclusion of the opposition Movement for
Democratic Change and its control of the Finance Ministry in a
coalition government. The MDC, led by former Prime Minister
Morgan Tsvangirai, boycotted the opening of parliament
yesterday, claiming the elections were rigged.

Tsvangirai said today he wouldn’t step down as head of the
MDC before his current term ends in 2016.

Following news that Mugabe had won another five-year term
and his Zimbabwe African National Union-Patriotic Front secured
a two-thirds parliamentary majority, the Zimbabwe Stock
Exchange’s benchmark index plunged 11 percent, its biggest one-day decline since 2009. The benchmark stocks gauge has fallen by
18 percent since the announcement.

‘Missed Opportunity’

Patrick Chinamasa, who has been justice minister for 13
years, became finance minister, a position he filled for a month
in 2009. Chinamasa, 66, is a senior member of ZANU-PF’s
politburo, its highest decision-making body.

“An opportunity has been missed in not appointing a more
technocratic minister of finance, as this is a crucial role for
investors,” who will probably adopt a “wait-and-see” approach
to Zimbabwe, Peter Leger, who runs a $600 million fund for South
Africa’s Coronation Fund Managers Ltd., said in an interview.

While MDC Secretary-General Tendai Biti served as finance
minister under the coalition government, the economy averaged
9.7 percent annual growth between 2009-2011, according to IMF
data. Schools and hospitals reopened after he ensured teachers
and nurses were paid.

The removal of Saviour Kasukuwere, who presided over the
youth, indigenization and empowerment portfolio, and Mines
Minister Obert Mpofu from their positions is positive, Leger
said. Their replacements, Francis Nhema and Walter Chidhakwa,
respectively, are “more technocratic and more moderate.”

Black Empowerment

Kasukuwere, 42, described himself as the “Hitler of our
time” for enforcing the 2008 black empowerment law that
requires all foreign and white-owned businesses to sell or cede
51 percent of their shares to black Zimbabweans or the National
Indigenization and Economic Empowerment Board, Harare-based
Newsday reported in April last year.

A farm owner, Kasukuwere has on several occasions also
suggested banks should be forced to lend more to black farmers.
“Banks just want to look nice and do not assist local people,”
he told a conference a year ago.

Banks including Barclays Plc and Standard Chartered Plc
must also show how they’ll comply with the indigenization law,
Kasukuwere said in March.

“Implementation of the country’s indigenization and
economic laws is to be pursued with renewed vigor,” Mugabe told
lawmakers yesterday during the official opening of parliament in
the capital, Harare. “Indigenization and empowerment
legislation will be strengthened during this session.”

‘More Pragmatic’

With Nhema and Chidhakwa likely to be “more open and
pragmatic” than their predecessors, the indigenization program
may not be “pushed as robustly and as abrasively as it was
under the previous administration,” Piers Pigou, a researcher
at the International Crisis Group, said by phone from
Johannesburg.

Central bank Governor Gideon Gono also immediately
reassured people he had no plans to bring back the Zimbabwean
dollar anytime soon.

Mugabe has blamed the nation’s economic woes on sanctions
from the European Union and the U.S., which are limited to a
travel ban and an asset freeze on his most senior supporters as
well as an arms embargo.

Zimbabwe has also been starved of foreign borrowing and has
$10.7 billion in debt, the same size as its economy, according
to the IMF. The Washington-based fund on June 13 said it will
start its first program with Zimbabwe since the country
defaulted on international loans in 1999. This is the initial
step toward making the country eligible for external borrowing.

Ultimately, policy will be set by Mugabe and his closest
advisers rather than the full cabinet, Pigou said.

“It’s not a disaster, but it won’t necessarily allay
concerns,” he said.